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Gravity Theory of Trade

The gravity theory of trade is an economic theory that explains the pattern of international trade based on the economic size and distance between countries.

According to the theory, the volume of trade between two countries is directly proportional to their economic size (measured by GDP) and inversely proportional to the distance between them. In other words, countries with large economies tend to trade more with each other, and the farther apart two countries are, the less likely they are to trade with each other.

The gravity theory of trade is based on the idea that the cost of trading between countries increases with distance, as it becomes more expensive to transport goods over long distances. It is also influenced by other factors such as cultural and linguistic barriers, as well as trade agreements and policies that can facilitate or hinder trade.

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